How Will the Minimum Wage Increase Affect Your Business?
As a small business owner, you need to understand how minimum wage increases will affect your company. The new wage laws will impact many businesses, including fast food, nail salons and tipped workers.
Increasing the federal minimum wage would increase wages for some workers and reduce employment in other sectors. In some cases, the increased incomes of families with working low-wage workers would lift them above the poverty threshold.
Why Do We Need to Raise the Minimum Wage?
In the richest country on earth, nobody should work for starvation wages. Raising the minimum wage is a moral imperative, and it’s also good economics. Studies have shown that putting more money in workers’ hands increases consumption and boosts the economy overall.
However, there are risks to raising the minimum wage that should be considered as well. For one, companies may increase prices on their goods and services in order to cover increased labor costs. This will lead to higher consumer prices and potentially fuel inflation.
Additionally, increasing the minimum wage will likely cause some businesses to eliminate jobs. This is particularly true for small business that have limited resources and limited margins. However, if businesses are proactive with employee communications they can prepare for these changes and minimize the impact on their employees and customers. They can also implement strategies like implementing friendly internal competitions to increase productivity and reduce hiring and training costs.
How Will the Increase Affect Your Business?
Many small businesses worry that a minimum wage increase will force them to cut back on new hiring and reduce employee hours. They may also have to raise prices or trim operating hours during peak times. The resulting higher labor costs could lead to lower sales and ultimately less profit.
Fortunately, research shows that despite the common assumption, these fears are often unfounded. In fact, according to a new study co-authored by UC Berkeley economist Michael Reich, small low-wage businesses don’t tend to cut jobs when wages rise and may actually benefit from increased consumer spending.
As a result, increasing worker pay rates can lead to greater worker morale and more stable employment rates for workers. In addition, the extra consumer spending boosts local economies. Moreover, in cities and states that have passed comprehensive fair workweek policies, employers can avoid job losses by offering workers more stability and predictability of their schedules. This can allow employees to make more informed decisions about where they want to work and can help them avoid taking part-time jobs that do not offer them a sufficient number of hours.
What Can You Do Now?
As the 2022 minimum wage increase approaches, employers are taking steps to prepare. Some companies are choosing to align their workers with the minimum wages of each municipality in which they operate. Others, such as PeopleReady, have worked with major national retailers to create a temp-to-hire staffing model that provides employees with the option to work in multiple cities at a single rate.
Studies show that raising the minimum wage can help lift some families out of poverty and reduce the need for public assistance programs such as SNAP. It can also increase morale and employee retention.
Several states and dozens of cities have already raised their minimum wage to $15 per hour, and New York will join them next year. Other cities and states have indexed their minimum wages to the cost of living, including Washington D.C., Seattle and many California cities and counties. This allows the minimum wage to automatically increase each year, while preserving the flexibility of local governments to adapt to changing economic conditions.
What Can You Expect in 2023
Last year, as inflation and interest rates spiked, many workers felt their wages were not keeping pace with the cost of living. This, along with trends like quiet quitting and The Great Resignation, has heightened the urgency to raise the minimum wage.
The federal government has not raised its bare minimum wage since 2009, but many states and cities have. Adding to the complexity, employers must pay whichever minimum wage applies in the jurisdictions where they operate.
It can be challenging to keep up with these changes, especially if you have multiple locations and/or employees working in different states. To help you stay ahead of these requirements, Fisher Phillips has updated our Client Portal with detailed wage and hour law summaries, template forms, state law maps, and other related materials that will be continuously updated as laws change. Subscribe to access this information and all other tools you need to manage your workforce. You can also contact your Fisher Phillips attorney or your account manager for assistance.